Monday, January 23, 2006

Employment Law

The supreme court held that the legislature's revocation of a state employee retirement benefit did not violate the takings clause of the Utah constitution because the benefit did not vest until the the employees actually retire.

Background: For more than 25 years, State employees have been offered a retirement benefit found in Utah Code Ann. § 67-19-14.2, entitled the “Unused Sick Leave Retirement Option Program” (“the Program”). Essentially, the program permits State agencies to offer their employees the option at retirement of converting their unused sick leave into paid-up health insurance at the rate of approximately eight hours of sick leave for one month of insurance. The statute authorizing the program has varied over the years. Sometimes it allowed the employee to convert 100 % of his or her sick leave and other times the employee could only convert 75 % and had to take a cash payout or a 410(k) contribution for the other 25 %. But the practice has generally been to allow employees to convert 100 % of their sick leave, despite changes in the statute over the years. In 2004, the legislature again amended the statute to reflect actual practice and permit employees to convert 100 % of their sick leave.

In 2005, the legislature passed H.B. 213. That bill phases out the Program over a five-year period and also returns the Program to its pre-2004 statutory requirements: 25 % of the sick leave accrued before January 1, 2006, must be paid out to the employee’s 401(k) plan.

The Utah Public Employees Association (UPEA) and the five employees sued the State. They claimed that the Program gave them a vested property interest in converting 100 % of their sick leave to paid-up benefits and that H.B. 213 enacted an unconstitutional taking of that property interest. The district court ruled that H.B. 213 did not constitute an unconstitutional taking and granted summary judgment for the State.

Analysis: The court split its decision between a majority opinion written by Associate Chief Justice Wilkins and joined by Chief Justice Durham and Judge Greenwood (Justice Durrant recused himself) and concurring opinions by Justice Parrish and Justice Nehring.

The majority first noted that H.B. 213 was not yet effective (the court stayed implementation of the bill until thirty-days after it disposed of the case) and UPEA therefore could only bring a facial challenge. The court then rejected the rule from United States v. Salerno, 481 U.S. 739 (1987), that requires a party mounting a facial challenge to show that the statute is unconstitutional in all of its applications—i.e. no set of circumstances exists under which the challenged act would be valid. Relying primarily on City of Chicago v. Morales, 527 U.S. 41 (1999), the court explained that the Supreme Court does not require states to follow the Salerno test when a facial challenge to a statute is brought under a provision of the state constitution. Rather, “a more appropriate threshold for determining the validity of facial challenges may simply exist in establishing the substantive merits of the case—the unconstitutionality of the legislation.

On the merits, the majority first explained that to show a taking, the plaintiff must establish (1) a protectable property interest and (2) a taking of that property. The majority and both concurrences agreed that UPEA’s challenge failed at the first step.

The general rule is that public employment is governed by statute and is subject to change at the will of the legislature. In other words, state employees have no vested property interest in any benefit the state offers. But there are two exceptions to the general rule: (1) when an employee has a vested contractual interest in retirement benefits; and (2) when the government agency creates a contractual interest by voluntarily undertaking additional obligations beyond the relevant statutory requirements.

Public employees had no vested contract rights in the Program. Vested contract rights arise only when the employee satisfies all the conditions precedent to obtain the benefit. The condition precedent to receiving the benefit of the Program was that the employee must be “eligible to receive retirement benefits in accordance with Title 49, Utah State Retirement and Insurance Benefit Act.” The majority found this language ambiguous. All full-time state employees accrue retirement benefits, but they don’t actually receive the benefits until they retire. Thus the Program could be read to vest upon employment, upon eligibility to retire, or upon actual retirement.

So the majority turned to extrinsic evidence to divine the legislature’s intent. The court determined that the critical inquiry was “at what point employees can act to accept the offer to redeem banked sick leave exclusively for medical and life insurance.” The answer to this inquiry is “only upon retirement.” Employees thus have no contractual claim upon the Program (i.e. no vested property interest) until they actually retire.

The court also held that agencies that voluntarily offered the program did not create an express or implied contract. Section 67-19-14.2 permits agencies to offer the program to its employees. It does not mandate offering the program. By offering the program, the agency goes beyond its statutory obligations. But “the critical question remains at what point in time employees are able to accept the offer.” So the second exception to the general rule is answered the same as the first: no right vests until actual retirement.

Since the majority held that no vested property interest arises until retirement, it did not reach the question of whether H.B. 213 constitutes a taking of that interest.

In her concurrence, Justice Parrish agreed with the majority up to the point where it found the language of section 67-19-14.2 ambiguous. She disagreed that the language was ambiguous. In her view, when that section is read in context with the rest of the retirement statues, it clearly vests a right in the Program only upon retirement.

She also argued that the second exception to the general rule—that state employees work at the will and pleasure of the legislature—is inapplicable to a facial challenge to the statute. She reasoned that a facial challenge turns solely on analysis of statutory language. One could therefore never bring a facial challenge to a benefit that an agency provides that is beyond its statutory obligations. In other words, if the benefit is truly outside the scope of the agency’s statutory obligations, one could not mount a facial challenge against the statute.

Justice Nehring also agreed with the majority. He wrote separately, however, to respond to Justice Parrish’s argument that the statute was not ambiguous. He also disagreed with the majority’s resolution of the statutory ambiguity. In his view, an ambiguous statute cannot vest property rights. He sees this as an instance where the legislature wins because it enacted “a statute remarkable for its impenetrability.”

The court of appeals upheld John D. Sorge's termination for sexual harassment. Sorge was terminated for making graphic sexual comments to a paralegal on two different occasions. This after being placed on corrective action for previous offensive conduct.

The court considered three issues. First, it held that due process did not require that Sorge be allowed to present witnesses and evidence regarding earlier disciplinary actions that were not the basis for his termination. It then held that Career Services Review Board did not abuse its discretion by upholding his termination. Lastly, the court held that the his sanction was not disproportionate to his conduct.

In analyzing the last issue, the court resolved what appeared to be inconsistent burdens of proof used by previous panels of the court to gauge proportionality. The first standard, from Lunnen v. Department of Transportation, 886 P.2d 70, 73 (Utah App. 1994), puts the burden on the agency to show "that the discipline was not disproportionate to the conduct." The second standard, used in Kelly v. Salt Lake City Civil Service Commission, 2000 UT App 235, 8 P.3d 1048, puts the burden on the employee to establish that the agency acted inconsistently in imposing sanctions. The employee must present evidence from which the CSRB could reasonably find a "relevant inconsistency."

The court resolved the discrepancy by noting that both parties had agreed that there were no other similarly situated employees to compare to Sorge. So it used the Lunnen test by default and put the burden on the State. If held that since Sorge had been warned of his conduct before, termination was not a disproportionate sanction.

The logical extension of the court's resolution of the Lunnen/Kelley discrepancy is that Kelley should be used if there are similarly situated employees. This suggests, however, that the burden is on the agency all the time. If Lunnen is the default test, but that agency knows of similarly situated employees that were treated the same, it must produce that evidence or default to the Lunnen test.